RESI: Strong Outlook for Refis Drives Increase in Market Confidence

According to the Q3 2016 First American Real Estate Sentiment Index (RESI), title agents exhibited a 7.6 percent increase in market production confidence.

The RESI is based on a quarterly survey of independent title agents on a variety of key market metrics and industry issues, including expectations for changes in purchase and refinance transaction volume and prices across multiple property types. More than 5,700 title agents from 50 states have participated in the first five editions of the quarterly survey. The 2016 third-quarter survey was conducted in July 2016.

"By combining title agents' outlook for transaction volume and prices, we can crowd-source the conventional wisdom of title agents and forecast the level of expected market production over the coming year. Generally, title agents are more confident in their expectations for the broader real estate market than they were a year ago," said Mark Fleming, chief economist at First American.

Market production, a leading indicator of market activity, is a metric that combines title agents' expectations for changes in both transaction volume and prices over the coming year. Market production increased 7.6 percent this past quarter as compared with a year ago, a gain largely driven by the significant increase in the outlook for refinance transactions.

"The surprising continuation of low rates in 2016 dramatically increased confidence by title agents in the growth of refinance transaction volumes during the third quarter,” he explained. “Refinance confidence also offset expectations that purchase volumes will cool, when compared with title agent survey results from the second quarter. The result is a positive improvement in total market production over a year ago."

Crowd-Sourced Title Agent Projections More Accurate than Many Forecasts

It has been a full year since the RESI first shared title agents' predictions for price growth and other key metrics across property types for the year ahead. But how accurate is the wisdom of the crowd? According to First American, In a post late last year, it was discussed that the collective wisdom of the crowd, such as that reported in the RESI survey, is often an accurate forecast – sometimes more accurate than the models economists build.

Looking back at the survey's 2015 Q3 results, the crowd-sourced wisdom of title agents forecasted an expectation for residential price growth of 4.8 percent in the year ahead. At the time, Fannie Mae's third-quarter forecast for that same measure was 4.0 percent. Freddie Mac's was 4.1 percent and the Mortgage Bankers Association's was 4.4 percent. Today, First American's house price index estimates that house prices actually increased by approximately 5.1 percent.

“Keeping in mind that even our historical perspective on house prices is, in fact, an estimate, these results provide significant support for the crowd-sourced wisdom of title agents,” First American reported.

In this quarter's survey, title agents are forecasting residential price growth of 5 percent for the year ahead.

"When we started this survey it was with the belief that forecasts based on crowd-sourced conventional wisdom can provide useful insight," said Fleming. "We are proud to report that after analyzing a year of survey results, title agents' projections were more accurate than many major economic forecasts. As Sir Francis Galton, a Victorian statistician, discovered over a century ago, the crowd will, on average, get the answer right — or at least very close to right."

Overall, title agents surveyed this quarter remain optimistic about transaction volumes across all property and loan types, with a 7.2 percent increase in optimism over a year ago.

When considering refinance transaction volume growth for the year ahead across all property types, title agent optimism jumped 8.5 percent from the past quarter. With the drop in mortgage rates during the third quarter, it is not surprising that optimism for residential refinance transaction growth increased the most dramatically, up 46 percent over a year ago.

While still optimistic, title agent confidence in purchase transaction growth across all property types declined almost 7 percent since last quarter's survey and is down 4.2 percent from the same quarter last year. Nationally, expectations for residential purchase transactions, while still in optimistic territory at an index value of 62.3, declined the most among all property types at 8.8 percent quarter-over-quarter.

Title Agent Optimism for Price Growth Softens

The 2016 third-quarter RESI found that while title agents' confidence in price growth waned slightly from the past quarter, that confidence was still strong for agents from all states, except those in New Mexico, who expect declining prices.

Confidence in retail and residential price growth declined the most, by 6 percent and 4.8 percent respectively, quarter-over-quarter. Title agent confidence in multi-family price growth decreased the least at 0.2 percent nationally quarter-over-quarter. State by state, title agent outlook remained consistently positive for multi-family price growth, except within New Mexico.